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Cairn India- No pot of gold, just yet: A lesson in Indian Bureaucracy and economic Bungling
February 7, 2011 7:07
Cairn Energy may have the fortitude to search for oil in the Arctic but it has more than met its match in the hotter climes of India. Sub-zero temperatures and pack ice can be no more hostile than an indecisive, glacial regulator.
Seven months on from an offer by Vedanta to buy Cairn Energy's Rajasthan oilfields for $9.6bn, the Indian government has yet to approve the deal. The last two days of crisis meeting in New Delhi may have helped move the portfolio forward. Bland statements, rather than the hoopla of breakthrough, suggest by an inch or two at most.
That is ominous for Bill Gammell, the chairman of Cairn, who promised his shareholders that the sale of the Indian subsidiary to London-listed Vedanta would be wrapped up by 15 April. A former international rugby player, he still believes he can get this highly lucrative deal over the line. But the Indian bureaucracy presents a wall-like defence that shreds most deadlines.
New Delhi has played an inscrutable game of bluff over past months, and in doing so has begun to confirm some of the worst suspicions among foreign investors about delay, even paralysis, uncertainty and possible unfairness in the bureaucracy.
The foot dragging and rumour mongering has begun to embarrass Manmohan Singh, the prime minister. He had requested that a decision be made by the petroleum ministry before the end of last month. But that deadline passed. More embarrassing is the ministry's desire to change the rules governing the oil field now that one shareholder wants to exit and a new one take its place.
Although never openly stated, New Delhi wants to impose as many as 11 new conditions before allowing Vedanta, the London-listed resources group, to take control of Cairn India, in what should be a celebrated corporate deal for India rather than a gruelling trial of nerves.
Some of these conditions are intended to address the government's reluctance to paying what it considers a disproportionate share of the costs of the project. These were agreed when no-one thought there was oil in Rajasthan and were designed to attract foreign expertise and risk capital.
The most breathtaking condition, however, is one that no company would ever sign up to. That is to surrender future dispute resolution rights in the state's favour even before knowing what that dispute might be.
One executive close to the talks says that Cairn would have to "find a way to say 'no' that sounds like 'yes'".
The price of that kind of contortion to India's rising economy is far dearer than Vedanta's offer.
http://blogs.ft.com/beyond-brics/2011/02/07/cairn-india-no-pot-of-gold-yet/
February 7, 2011 7:07
Cairn Energy may have the fortitude to search for oil in the Arctic but it has more than met its match in the hotter climes of India. Sub-zero temperatures and pack ice can be no more hostile than an indecisive, glacial regulator.
Seven months on from an offer by Vedanta to buy Cairn Energy's Rajasthan oilfields for $9.6bn, the Indian government has yet to approve the deal. The last two days of crisis meeting in New Delhi may have helped move the portfolio forward. Bland statements, rather than the hoopla of breakthrough, suggest by an inch or two at most.
That is ominous for Bill Gammell, the chairman of Cairn, who promised his shareholders that the sale of the Indian subsidiary to London-listed Vedanta would be wrapped up by 15 April. A former international rugby player, he still believes he can get this highly lucrative deal over the line. But the Indian bureaucracy presents a wall-like defence that shreds most deadlines.
New Delhi has played an inscrutable game of bluff over past months, and in doing so has begun to confirm some of the worst suspicions among foreign investors about delay, even paralysis, uncertainty and possible unfairness in the bureaucracy.
The foot dragging and rumour mongering has begun to embarrass Manmohan Singh, the prime minister. He had requested that a decision be made by the petroleum ministry before the end of last month. But that deadline passed. More embarrassing is the ministry's desire to change the rules governing the oil field now that one shareholder wants to exit and a new one take its place.
Although never openly stated, New Delhi wants to impose as many as 11 new conditions before allowing Vedanta, the London-listed resources group, to take control of Cairn India, in what should be a celebrated corporate deal for India rather than a gruelling trial of nerves.
Some of these conditions are intended to address the government's reluctance to paying what it considers a disproportionate share of the costs of the project. These were agreed when no-one thought there was oil in Rajasthan and were designed to attract foreign expertise and risk capital.
The most breathtaking condition, however, is one that no company would ever sign up to. That is to surrender future dispute resolution rights in the state's favour even before knowing what that dispute might be.
One executive close to the talks says that Cairn would have to "find a way to say 'no' that sounds like 'yes'".
The price of that kind of contortion to India's rising economy is far dearer than Vedanta's offer.
http://blogs.ft.com/beyond-brics/2011/02/07/cairn-india-no-pot-of-gold-yet/
